8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): November 29, 2005

Mercury Interactive Corporation

(Exact name of registrant as specified in its charter)

Delaware	0-22350	77-0224776
(State or other jurisdiction of incorporation)	(Commission File No.)	(IRS Employer Identification No.)

379 North Whisman Road, Mountain View, California 94043

(Address of Principal Executive Offices)

(Registrant’s Telephone Number, Including Area Code)

(650) 603-5200

(former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Solicitation material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 241.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement

On November 3, 2005, Mercury Interactive Corporation (the “Company”) announced that it had entered into an agreement with Doug Smith, the Company’s former Chief Financial Officer, pursuant to which the Company and Mr. Smith agreed to increase the exercise price of Mr. Smith’s option, with the price to be agreed upon by the Company’s Special Committee and Mr. Smith within 30 days of the agreement. On November 30, 2005, the Company and Mr. Smith agreed to increase the exercise price of Mr. Smith’s option underlying his option agreement dated November 2, 2001 to $28.05 per share, and Mr. Smith has agreed to pay to the Company the difference between Mr. Smith’s original exercise price and the agreed-upon exercise price of $28.05 for each share he previously acquired on exercise of that option. The option will remain exercisable until March 15, 2006 to the extent it was exercisable on the date his employment terminated.

Item 8.01. Other Events

The Company (NASDAQ: MERQE) announced on November 29, 2005, in the press release attached hereto as Exhibit 99.1, that the NASDAQ Listing Qualifications Panel has granted the Company an extension of time until January 3, 2006 in which to file its quarterly reports on Form 10-Q for the periods ended June 30, 2005 and September 30, 2005, all required restated and other financial statements for previous periods, and to otherwise meet all necessary listing standards of The NASDAQ National Market.

The latest extension was granted as a result of a revised plan of compliance submitted by the Company to the Panel on November 15, 2005. It is a requirement of the Panel’s decision that through January 3, 2006, the Company provide prompt notification to the Panel of any significant events that occur during this time, including any event that may call into question the Company’s historical financial information or that may impact the Company’s ability to maintain compliance with any NASDAQ listing requirement or the January 3, 2006 deadline. In addition, any compliance document prepared by the Company will be subject to review by the Panel, which may, in its discretion, request additional information before determining that the Company has complied with the terms of the Panel’s decision. There can be no assurance that the Company will be able to meet the January 3, 2006 deadline established by the Panel. In granting the Company’s request, the Panel noted that it would not entertain further extension requests should the Company be unable to make its filings by the January 3, 2006 deadline. If the Company is unable to comply with the conditions for continued listing required by the Panel, the Company’s shares of common stock are subject to immediate delisting from The NASDAQ National Market. The Company would have the option to request that the NASDAQ Listing and Review Council review any decision to delist its shares from The NASDAQ National Market, but cannot provide any assurance that its request would be successful. Any such request would not stay a decision to delist the Company’s shares.

During the extension period, the Company’s common stock will continue to be listed on The NASDAQ National Market under the trading symbol: MERQE.

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits

10.49	Amendment Agreement by and between the Company and Doug Smith dated November 30, 2005
99.1	Press release date November 29, 2005

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: December 2, 2005	MERCURY INTERACTIVE CORPORATION
	By:	/s/ David J. Murphy
	Name:	David J. Murphy
	Title:	Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
10.49	Amendment Agreement by and between the Company and Doug Smith dated November 30, 2005
99.1	Press release dated November 29, 2005

EX-10.49

Exhibit 10.49

Amendment Agreement

This Agreement dated November 30, 2005 is by and between Mercury Interactive Corporation (the “Company”) and Doug Smith (“Optionee”).

WHEREAS, the parties have entered into an Agreement executed October 31, 2005 between Optionee and the Company (the “Agreement”), attached hereto as Exhibit A;

WHEREAS, Optionee and the Company have agreed that the new exercise price of the options is $28.05;

1. Amendment to Option Agreement. The Notice of Stock Option Grant and Option Agreement dated November 2, 2001 (the “Option Agreement” and the underlying stock option, the “Option”) between the Company and Optionee is hereby amended as follows:

(a) The Exercise Price (as defined in the Option Agreement) of the Option shall be $28.05 per share.

(b) The Option shall remain exercisable until March 15, 2006 to the extent the Option was exercisable on the date of Optionee’s termination of employment.

2. Repayment of Exercise Price. Pursuant to the Agreement, Optionee shall pay the Company an amount equal to the excess of $28.05 over the original exercise price for each of the shares acquired prior to the date hereof on exercise of the Option.

3. Counterparts. This agreement may be signed in one or more counterparts, each of which shall constitute an original, and all of which shall constitute one instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above.

MERCURY INTERACTIVE CORPORATION
By:	/s/ Anthony Zingale
DOUG SMITH
	/s/ Doug Smith

EXHIBIT A TO AMENDMENT AGREEMENT

AGREEMENT

This Agreement is entered into by and between Mercury Interactive Corporation (“Mercury”) and Doug Smith, the Chief Financial Officer of Mercury.

WHEREAS, the Securities Exchange Commission and a Special Committee of the Board of Directors of Mercury (“Special Committee”) are conducting investigations concerning possibly unlawful or otherwise actionable conduct with respect to stock option practices, accounting for stock option grants, option exercises and loans to executive officers, and related matters.

WHEREAS, Doug Smith, while expressly denying any wrongdoing, desires to enter into this Agreement to give up any possibly inappropriate benefit he may have received in connection with his option grants.

In consideration of the covenants undertaken and contained herein, the adequacy of which is herein acknowledged, the parties agree as follows:

1. Doug Smith’s existing options will be re-priced to the closing price of Mercury stock on the day in November 2001 that the grants were actually determined.

2. To the extent that Doug Smith has exercised options, he will pay to Mercury the difference between the exercise price of the options and the closing price of Mercury stock on the day in November 2001 the grants were actually determined.

3. If the date to be used as “the day the grants were actually determined” cannot be reached by agreement between the Special Committee and Doug Smith within 30 days of the execution of this agreement, the date (or the closest date that can be determined) will be selected through an arbitration before JAMS, as set forth below. Payment will be made to Mercury within 10 days of any agreement between the Special Committee and Doug Smith or decision of the arbitrator.

AGREEMENT PAGE 1

4. Nothing contained in this Agreement shall be deemed as an admission by any party.

5. This Agreement shall not be deemed to constitute a waiver of any rights, claims or defenses of any of the parties to this Agreement. This Agreement does not constitute a release of any claims that either party may have against the other, other than Mercury’s right to recover from Doug Smith the difference between the price of his options as stated and the price on the date they were actually determined.

6. This Agreement can be modified only in writing signed by the parties. The Agreement shall constitute the entire understanding between the parties concerning the subject matter of this Agreement and supersedes and replaces all prior negotiations, proposed agreements, and agreements, written or oral, relating to this subject.

7. Both parties agree to cooperate with the other in taking any steps required to finalize this Agreement.

8. Both parties have cooperated in the drafting and preparation of this Agreement. Hence, in any construction to be made of this Agreement, the same shall not be construed against any party on the basis that the party was the drafter.

9. This Agreement may be executed in one or more counterparts, each of which shall constitute an original, and all of which shall constitute one instrument.

10. In entering this Agreement, the parties represent that they have relied upon the advice of their attorneys, who are attorneys of their own choice, and that the terms of this Agreement have been completely read and explained to them by their attorneys, and that those terms are fully understood and voluntarily accepted by them.

11. To the fullest extent allowed by law, any controversy or claim arising out of or relating to this Agreement shall be settled by binding and non-appealable arbitration conducted in San Francisco, California, by an arbitrator selected in accordance with the procedure set forth below. Doug Smith and Mercury shall initially confer and attempt to reach agreement on the individual to be appointed as the arbitrator from the panel of arbitrators

AGREEMENT PAGE 2

maintained by the JAMS office in San Francisco, California. If no agreement is reached, Doug Smith and Mercury shall request from JAMS a list of five retired judges affiliated with JAMS. Doug Smith and Mercury shall each alternately strike names from such list until only one name remains, and such person shall thereby be selected as the arbitrator. Except as otherwise provided for herein, such arbitration shall be conducted in conformity with the procedures specified in the California Arbitration Act (Cal. C.C.P. Sections 1280 et seq.). The arbitrator shall allow the discovery authorized by California Code of Civil Procedure section 1283.05 or any other discovery required by law in arbitration proceedings. Also, to the extent that anything in this Agreement conflicts with any arbitration procedures required by applicable law, the arbitration procedures required by applicable law shall govern. The arbitrator shall issue a written award that sets forth the essential findings and conclusions on which the award is based. The arbitrator shall have the authority to award any relief authorized by law in connection with the asserted claims or disputes. The arbitrator’s award shall be subject to correction, confirmation, or vacation, as provided by any applicable law setting forth the standard of judicial review of arbitration awards.

Mercury and Doug Smith will share equally the arbitrator’s fees and any other expense of conducting the arbitration. Each party will pay its own attorneys fees and costs, except that the prevailing party will be entitled to reimbursement from the opposing party or parties of its reasonable fees (including attorney fees) and expenses he or it may incur in connection with such arbitration. Any final decision of the arbitrator so chosen may be enforced by a court of competent jurisdiction.

AGREEMENT PAGE 3

I have read the foregoing Agreement, and I accept and agree to the provisions it contains and hereby execute it voluntarily with full understanding of its consequences.

MERCURY INTERACTIVE CORPORATION
By:	/s/ Clyde Ostler
Title:	Special Committee Chairman
Dated:	October 31, 2005
DOUG SMITH
By:	/s/ Doug Smith
Dated:	October 28, 2005

AGREEMENT PAGE 4

EX-99.1

Exhibit 99.1

Investor Relations Contact

Michelle Ahlmann, 650.603.5200

Public Relations Contact

Dave Peterson, 650.603.5200

Mercury Granted Extension from NASDAQ

Mountain View, CA, November 29, 2005 – Mercury Interactive Corporation (NASDAQ: MERQE) today announced that the NASDAQ Listing Qualifications Panel has granted the Company an extension of time until January 3, 2006 in which to file its quarterly reports on Form 10-Q for the periods ended June 30, 2005 and September 30, 2005, all required restated and other financial statements for previous periods, and to otherwise meet all necessary listing standards of The NASDAQ National Market.

The latest extension was granted as a result of a revised plan of compliance submitted by the Company to the Panel on November 15, 2005. It is a requirement of the Panel’s decision that through January 3, 2006, the Company provide prompt notification to the Panel of any significant events that occur during this time, including any event that may call into question the Company’s historical financial information or that may impact the Company’s ability to maintain compliance with any NASDAQ listing requirement or the January 3, 2006 deadline. In addition, any compliance document prepared by the Company will be subject to review by the Panel, which may, in its discretion, request additional information before determining that the Company has complied with the terms of the Panel’s decision. There can be no assurance that the Company will be able to meet the January 3, 2006 deadline established by the Panel. In granting the Company’s request, the Panel noted that it would not entertain further extension requests should the Company be unable to make its filings by the January 3, 2006 deadline. If the Company is unable to comply with the conditions for continued listing required by the Panel, the Company’s shares of common stock are subject to immediate delisting from The NASDAQ National Market. The Company would have the option to request that the NASDAQ Listing and Review Council review any decision to delist its shares from The NASDAQ National Market, but cannot provide any assurance that its request would be successful. Any such request would not stay a decision to delist the Company’s shares.

During the extension period, the Company’s common stock will continue to be listed on The NASDAQ National Market under the trading symbol: MERQE.

Mercury Granted Extension from NASDAQ

About Mercury

Mercury Interactive Corporation (NASDAQ: MERQE), the global leader in business technology optimization (BTO) software, is committed to helping customers optimize the business value of information technology. Founded in 1989, Mercury conducts business worldwide and is one of the largest enterprise software companies today. Mercury provides software and services for IT Governance, Application Delivery, and Application Management. Customers worldwide rely on Mercury offerings to govern the priorities, processes and people of IT and test and manage the quality and performance of business-critical applications. Mercury BTO offerings are complemented by technologies and services from global business partners. For more information, please visit www.mercury.com.

Forward Looking Statements

This press release contains “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties concerning Mercury’s expected financial performance, as well as Mercury’s future business prospects and product and service offerings. Mercury’s actual results may differ materially from the results predicted or from any other forward-looking statements made by, or on behalf of, Mercury and reported results should not be considered as an indication of future performance. Potential risks and uncertainties include, among other things: 1) the timing of completion of the Company’s review, restatement and filing of its historical financial statements and the filing of its quarterly reports on Form 10-Q for the second and third quarters of fiscal year 2005, 2) the impact of the expensing of stock options and stock purchases under Mercury’s employee stock purchase program pursuant to Financial Accounting Standards Board’s Statement 123 including, without limitation, the impact of the restatement, 3) the impact of the resignations of Amnon Landan, Douglas Smith and Susan Skaer, 4) the possibility that the trustee for Mercury’s Zero Coupon Senior Convertible Notes due 2008 (the 2003 Notes) and 4.75% Convertible Subordinated Notes due 2007 (the 2000 Notes and, together with the 2003 Notes, the Notes) or the holders of at least 25% of the outstanding principal amount of the 2000 or the 2003 Notes may, if the Company does not file its historical financial statements and periodic reports by March 31, 2006, cause acceleration of repayment of the entire principal amount and accrued interest on such Notes, 5) the nature and scope of the ongoing SEC investigation, 6) the substantial risk that the Company will not be able to complete its quarterly reports on Form 10-Q for the periods ended June 30, 2005 and September 30, 2005 and all required restated and other financial statements for previous periods by January 3, 2006 and, if the Company fails to complete such reports by January 3, 2006 and is therefore delisted, that the Company will not achieve relisting by The NASDAQ National Market, 7) the effect of any

Mercury Granted Extension from NASDAQ

third party litigation arising out of the Special Committee investigation, 8) costs incurred by Mercury in connection with the Special Committee investigation and the SEC investigation, 9) the mix of perpetual and term licenses and the effect of the timing of recognition of revenue from products sold under the term licenses, 10) the impact of the transition in Europe, 11) the amount of restructuring charges incurred by Mercury in the third quarter of fiscal year 2005, 12) dependence of Mercury’s growth on the continued success and acceptance of its existing and new software products and services and on the success of its BTO strategy, and 13) the additional risks and important factors described in Mercury’s SEC reports, including the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2005, which is available at the SEC’s website at http://www.sec.gov. All of the information in this press release is made as of November 29, 2005, and Mercury undertakes no duty to update this information.

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Mercury, Mercury Interactive and the Mercury logo are trademarks of Mercury Interactive Corporation and may be registered in certain jurisdictions. Other product and company names are used herein for identification purposes only, and may be trademarks of their respective companies.